Posts Tagged ‘recession’

I have mentioned more than a few times my belief that recovery is not a return to 2007. The new normal will create damatic shifts and new paradigms for bank planning.

Detroit gets picked on a lot …. but these pictures are not pictures of a temoorary set-back. Prepare to be disturbed. This might go some way to explain why houses in Detroit can be purchased for as little as $5K.

Like this:

Something that has been niggling at me here and here is the law of unintended consequences. The people architecting the financial stimuli today are first politicians and second relatively young living their maturity post the late 70’s early 80’s.

The key statement in this article is at the end, and it was quoted by Geithner today too – that this borrowing is temporary and will be repaid as soon as things are back to normal. Please stand up if you know:

when normal is expected to resume

that we will be able to repay the debt at that time? [ would the increase in tax to accomplish debt repayment send us back in a recession? ]

No, we have to accept that we will have high inflation, some equally tough times on the other side of the recession, and financial services must adapt (The Great Unwinding – my take on the future of banks).

The US economy is expected to experience an overall fall in prices this year for the first time since 1955, the world is in the grip of a severe recession and the oil price is 70 per cent below its peaks of last year.

So what are investors currently worrying about? Why, inflation, of course.

xxxThe simple ecpnomic fact is that high borrowing will be followed by inflation. Rationalsing otherwise falls in the same camp as rationalising a bubble housing market that its “different this time” and based on different fundamentals, or alternate economic policies. Well no-one is arguing that house prices will maintain their value now….

2. The cost of recession isn’t just unemployment hitting a few hundred thousand, but the fear of unemployment hitting millions.

But this fear exists even in normal times, because the job destruction rate is so high. The 25,000 jobs that’ll be lost when Woolies closes represents just half of one average week of job losses between 1997 and 2005.

The other day, I tried to do some Christmas shopping. I went into six shops looking for a Wii fit. All were out of stock. When I get home, I get a Barclaycard statement telling me my credit limit has been raised.

The facts are that few of us understand all this. Its all to easy to insist on bailout packages and economic stimulus. Times of change make everything very personal.

Some thoughts:

We are in a time of industrial revolution. Many businesses that have prospered through the last 50 years of relative boom times, did so because consumer demand exceeded their need to innovate. Where are the cars that do 150 miles per gallon.Where are the payment systems that seamlessly shift money easily simply and cheaply to merchants, people or internationally. Where are the mobile devices that work on primarily data plans with voice as an extra.

Innovation has come erratically and in small localised pieces. Innovation has resisted peoples requests, preferring to intercept those requests with scripted call centre employees. Yet companies have no idea, institutionally, what is in the content of those conversations.

But things are changing, and that is where the industrial revolution is taking place. Internet has brought together movements in conversations, and the peoples requests are being spoken, heard, and gathering strength.

Here are three industries [auto, banking, telco] that have challenges – what will they look like in 25 years. Do they need a bailout, or temporary money to keep them in a holding pattern while industry disruptors give people what they want.